This morning, once again headlines are controlling the price action and the markets are green. General Electric (NYSE:GE) stock for a change is also part of the party.
Overnight we learned that the U.S. and Canada came to terms, so now we have a trilateral deal with Mexico to replace NAFTA. GE stock has the added advantage as the company announced the replacement of its chairman and CEO, which a lot of experts have been calling for for a while.
The incoming CEO is an outsider and Wall Street should like that for a while. The outgoing GE CEO Flannery had too much junk to clear up from the prior CEO Jeff Immelt, who apparently made a mess of things. Leadership is very important to investors — just look at the action in Tesla (NASDAQ:TSLA) stock this morning.
GE is up 10% on its headline and usually I don’t like the chase big pops. But this one may have legs and is worth pursing. I consider this a speculative trade, even though GE is a historic company which has lost its glory of late.
2018 has been the year where headlines reigned supreme with regards to price action. The global tariff wars have led the short-term price action on some wild rides. But overall the bulls have been in control. This has not been the same for GE stock. It has been in a perpetual fall for months but therein lies the opportunity.
They say that nothing rises forever, I also say that nothing that has intrinsic value falls forever either. Regardless weather you are a bull or bear, GE has global assets and eventually somebody will figure how to make them work again for the stockholders.
There are no guarantees, but this is the nature of investing. Today I make a speculative calculated bet that the new leadership will have a decent chance at turning this ship around.
There are plenty of experts who can argue the fundamentals on GE from both sides of the fence. The bears are banking on the downward spiral continuing. The bulls see nothing but upside potential from here. Somewhere in the middle lies the truth, and to me it’s purely technical at this point.
I do acknowledge that it does have enough fundamentals that it’s not going to zero, so make this calculated risk using options. There I define my risk and the time frame. Then, I manage my odds of winning based how the price for GE stock moves.
Technically, the daily GE chart shows that there could be short term stabilization at the recent lows of last week. However this is a chart that has been sliding for so long that I really have to expand to a monthly view in order to get proper perspective on how far this former giant has fallen.
Many have lost fortunes recently in trying to catch this falling machete, but falling wedges don’t continue to fall forever if the stocks have intrinsic value — and this one does. So at some point the falling wedge will break up words and the buyers will have momentum.
Luckily, today’s trade is cost a net credit. So as long as price stays above my puts any premium I recover from closing the calls would be gravy.
GE Stock Trade Ideas
The Upside Hopium: Buy GE March 2019 $15 calls for 25 cents per contract. I need the price to rise towards it through 2018 to profit.
To mitigate out-of-pocket risk, I will also sell downside risk into support. This is basically saying that it has bottomed for the short term.
The Optional Bank: Sell GE Jan 2019 $11 puts and collect 35 cents per contract. If price falls below it then I will own shares at that price. I am not required to hold either trade through expiration. I can close either at any time for partial gains or losses.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
